Over the pandemic, thousands of people prematurely pulled from their retirement funds.
Americans who are reaching retirement age are the most confused about what they actually need to retire.
A recent study from Fidelity, an investment company, found that Gen X (42 to 57 years old) is the least likely generation to know when they want to retire and how much money they’ll need to do it.
They also found that 20 percent of Gen X respondents overestimate how much they can pull from their retirement funds. They thought that they should withdraw 10 to 15 percent of their savings every year. In reality, they shouldn’t withdraw more than four to five percent.
But even those who haven’t reached retirement yet are already pulling out of their savings.
A study from Kiplinger’s Personal Finance found that overall, nearly 60 percent of Americans pulled from their retirement funds during the pandemic to cover basic living expenses. Many people say they’ll have to work longer than planned because of the pandemic – meaning COVID-19 will affect many people’s finances for the rest of their lives.
Last fall, millions of Americans quit their jobs in what has been dubbed the “Great Resignation.” Twenty-one percent of people who resigned and had access to a 401(k) said they pulled some of their savings from it. Besides just setting your retirement planning back, taking money from your 401(k) before you reach retirement age can also lead to a 10 percent tax penalty.
“The fact that so many people who left their jobs as a result of the Great Resignation also cashed out of their 401(k)s may be cause for concern,” said Rita Assaf, vice president of Retirement at Fidelity Investments. “Taking money out of your retirement accounts completely should be avoided unless the immediate need is critical and there are no other options, not only because of the tax implications, but also due to the impact on your retirement nest egg.”
Quitting a job certainly makes it harder to save up and today’s rising inflation hasn’t helped. Most people are worried about the impact it’ll have on their retirement funds and 31 percent of Americans feel like inflation has set back their retirement plans.
But as older Gen Xers approach retirement, nearly 30 percent haven’t even thought about their retirement plans – women are even further behind at 62 percent.
Not only does planning mean you’re prepared for the future, but it also means less anxiety today. Ninety-one percent of Americans with a plan feel confident about their future finances opposed to 67 percent of those who don’t.
“If possible, one of the most important things you can do to prepare yourself for retirement is to start saving as early as possible,” Assaf said. “Since you have time and the power of compound interest potentially on your side.”
Published by Debt.com, LLC